To The Moon

JD.com (JD) reported a strong 3Q22 beat, with adjusted net income beating estimates by 28%. This was due to net margin improving 180 basis points (bps) year-on-year (YoY) and 170bps quarter-on-quarter (QoQ). Revenue was in-line with estimates (-1%), growing 11.4% YoY driven by services revenue. Annual active customer accounts grew 6.5% YoY and 1.3% QoQ to 588.3m in 3Q22, reaccelerating from the flat growth rate in 2Q22. Near-term, we are likely to see weaker than expected overall sales in China as management highlighted on-going difficulties due to Covid-19 measures. That said, management was cautiously optimistic going into 2023 as they view the recently introduced 20 rules guiding Covid-19 measures to be very positive and constructive for recovery of domestic supply chain and consumer confidence, although they could not be sure of the speed of recovery. Despite having little control over the timing of sustainable sales recovery, JD management stressed that they continue to focus on their long-term strategy of growing their margins to reach industry averages, as margins in almost all their business segments are still significantly below industry averages today. Despite near-term sales headwinds, we remain positive on JD in the long term as its growth rates should continue to remain above peers on multiple drivers – industry sales recovery, market share gains, cost optimisation efforts, growing sources of revenue and earnings from increased advertising dollars and logistics services from third party merchants. Following adjustments, we maintain our fair value (FV) at USD 76 (JD US) / HKD 298.00 (9618 HK).

At this stage, I will consider going into this stock. But given market weakness I may wait out more as I believe that there are further downsides to the stock. I feel the stocks haveyet to bottom out and there should be buying opportunities at a later stage. You can practise dollar cost averaging to reduce the cost of the stock.

@TigerStars 

DYODD